CBO Shows Explosive Growth in Cost of Income Driven Repayment for Student Loans

WASHINGTON, D.C. – The Congressional Budget Office (CBO) today released a new report that shows the cost projections for income driven repayment (IDR) plans surging, which will ultimately cost the federal government more than $200 billion over the next decade. The report also found that more than half of the loans are expected to be forgiven, instead of fully repaid. The report was requested by Senate Budget Committee Chairman Mike Enzi (R-WY) and Senate Health, Education, Labor, and Pensions Committee Chairman Lamar Alexander (R-TN). The chairmen specifically asked CBO to examine the effects of federal student loan policies on borrowing, loan repayment, cancellation, discharge, and forgiveness.

“This new report confirms the explosive growth of income-driven repayment plans is unsustainable,” said Chairman Enzi.  “Our nation is currently facing trillion-dollar deficits and any system that lends more than is repaid will ultimately become a liability to American taxpayers. Moreover, as this report finds, the significant majority of the benefits of these programs are going to forgive graduate student loans. While higher education provides valuable opportunities, including increased earnings potential, it is crucial that lawmakers review these programs to ensure they are targeting limited federal resources appropriately and slowing the unsustainable growth in the cost of higher education.”

IDR plans allow student borrowers to pay a percentage of their discretionary income every month for a certain number of years, depending on the plan, and then have the remainder of their student loan balances forgiven. 

The CBO report found that:

  • As of December 2018, outstanding student loans issued or guaranteed by the federal government totaled $1.4 trillion—or 6.8 percent of gross domestic product (GDP);
  • The number of borrowers in income-driven plans grew rapidly between 2010 and 2017 (undergraduate income-driven plans grew from 11 to 24 percent and graduate income-driven plans loans grew from 6 to 39 percent);
  • More than $200 billion in student loans will be forgiven between 2020 and 2029 ($40.3 billion for undergraduate students and $167.1 billion for graduate students);
  • Forgiven amounts are equal to 21 percent of the disbursed amount for undergraduate borrowers and 56 percent of the disbursed amount for graduate borrowers; and
  • For every dollar disbursed, the government is projected to lose 16.9 cents for loans repaid through income-driven plans.

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